role of financial institutions

1. What is financial intermediation?

2. What is the role of financial institutions?

Please be thorough and also give me some examples to help me fully understand each concept.

Solution Preview

The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth. Financial intermediaries are firms that borrow
<br>from consumer/savers and lend to companies that need resources for investment. In contrast, in capital markets investors contract directly with firms, creating marketable securities. The prices of these securities are observable, while financial intermediaries are opaque.
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<br>Why are financial intermediaries ...